Aeroplan's profits fall after change to corporate status
Groupe Aeroplan Inc. saw its third-quarter profit drop by 30 per cent despite a steep rise in revenue, mainly because of the company's switch in corporate status.
Aeroplan, which runs the Air Canada consumer loyalty program, earned $34.96 million, or 18 cents a share, for the three months ended Sept. 30, the company announced Friday. That compared with a profit of $50.9 million, or 26 cents a share, for the same period a year earlier.
The company said the decline in earnings was due to the decision to change its status from that of an income trust back into a corporation.
Three month stock chart for Groupe Aeroplan Inc.The switch was approved in May and was taken in response to Ottawa's changes in 2006 that effectively would end by 2011 the income trust's ability to shelter cash.
Aeroplan, which earns money by developing consumer reward programs with various companies, had to accelerate this strategy because it risked violating foreign ownership rules for existing income trusts, a situation which would remove Aeroplan's tax-free status.
Measuring Aeroplan's adjusted earnings before subtracting non-cash charges, the Montreal-based company posted third quarter earnings of $80 million, an increase of 24 per cent compared to the same yardstick for the same period in 2007.
Little effect so farAeroplan's adjusted earnings figures is not calculated according to generally accepted accounting principles.
Aeroplan's business has remained strong throughout September and into October, a month not covered by the latest quarterly results.
"The global uncertainty has had little effect on our business," said Rupert Duchesne, Aeroplan's president and chief executive officer in a conference call Friday.
In fact, Aeroplan's revenue jumped 53 per cent in the latest three month period, reaching $335 million. For the first nine months of 2008, the company posted sales in excess of $1 billion, a level greater than revenue for all of 2007.
Aeroplan's latest results, however, included the performance of U.K.-based Loyalty Management Group Ltd., which the Canadian firm purchased in 2007.
David Adams, Aeroplan's chief financial officer, said the new subsidiary added $94.5 million in extra sales to the parent company's top line in the third quarter. When this amount is subtracted from Aeroplan's sales, the company still posted revenue growth in excess of 10 per cent.
Future hard to call: CEODespite Aeroplan's strong showing in the face of growing financial difficulties, however, the company does not have enough confidence to give out guidance for 2009.
"It is difficult to say where we will be at by the end of the year," Duchesne said.
As well, there is generally a two-week lag between when consumers use their credit cards and when Aeroplan realizes the points as revenue. Thus, the firm still could face flagging sales into the Christmas season depending upon how consumers react to the slowing economy.
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